Upton Umbrellas has a cost of equity of 12.7 percent, the YTM on the company's bonds...
Upton Umbrellas has a cost of equity of 12.7 percent, the YTM on the company's bonds is 5.6 percent, and the tax rate is 40 percent. The company's bonds sell for 104.3 percent of par. The debt has a book value of $441,000 and total assets have a book value of $963,000. If the market-to-book ratio is 3.07 times, what is the company's WACC?
Multiple Choice
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10.62%
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10.37%
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8.49%
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5.44%
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8.33%
Homework Answers
Market value of debt = 1.043($441000) = $459963
Book value of equity = $963000 − 441000 = $522000
Market value of equity = 3.07($522000) = $1602540
Market value of company = $459963 + 1602540 = 2062503
WACC = ($1602540/$2062503)*12.7% + 5.6%($459963/$2062503)(1 − 0.40)
WACC = 9.8677% + 0.74932%
WACC = 10.62%
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